Vollrath v. Corinthian Ophthalmic, Inc.

Vollrath v. Corinthian Ophthalmic, Inc., 2014 NCBC 59.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

UNION COUNTY 14 CVS 1676

JURGEN VOLLRATH,

Plaintiff,

v.

CORINTHIAN OPHTHALMIC, INC., ORDER AND OPINION

and FRED ESHELMAN,

Defendants.

{1} THIS MATTER is before the Court upon Defendants Corinthian

Ophthalmic, Inc. (“Corinthian” or the “Company”) and Fred Eshelman’s (“Eshelman”)

(collectively, “Defendants”) Motion to Dismiss or, in the Alternative, for Summary

Judgment (the “Motion”) in the above-captioned case. After considering the Motion,

the briefs in support of and in opposition to the Motion, and the arguments at a

hearing held on October 8, 2014, the Court GRANTS Defendants’ Motion, enters

judgment for Defendants, and DISMISSES this action with prejudice.

Jürgen Vollrath, pro se.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP by James T. Williams and

Benjamin R. Norman for Defendants Corinthian Ophthalmic, Inc. and Fred

Eshelman.

Bledsoe, Judge.

I.

INTRODUCTION

{2} Plaintiff filed the Complaint in this action on June 27, 2014. Plaintiff does

not specifically identify his claims for relief in the Complaint but appears to assert

claims against Corinthian for common law fraud and for unfair and deceptive trade

practices under N.C.G.S. § 75-1.1 (“UDTPA”),1 and further, to pierce the corporate

veil to hold Eshelman personally liable on the claims against Corinthian.2

{3} Defendants filed this Motion seeking dismissal of each of Plaintiff’s claims

for failure to state a claim under Rule 12(b)(6) of the North Carolina Rules of Civil

Procedure or, in the alternative, for summary judgment under Rule 56. Both parties

have presented evidence outside the pleadings for the Court’s consideration. The

Court has elected to consider that evidence and therefore determines Defendants’

Motion solely as a Rule 56 motion for summary judgment. See, e.g., Stanback v.

Stanback, 297 N.C. 181, 205, 254 S.E.2d 611, 627 (1979) (“A Rule 12(b)(6) motion to

dismiss for failure to state a claim is . . . converted to a Rule 56 motion for summary

judgment when matters outside the pleadings are presented to and not excluded by

the court.”).

II.

FACTUAL BACKGROUND

{4} “Although findings of fact are not necessary on a motion for summary

judgment, it is helpful to the parties and the courts for the trial judge to articulate a

summary of the material facts which he considers are not at issue and which justify

entry of judgment.” Collier v. Collier, 204 N.C. App. 160, 161–62, 693 S.E.2d 250, 252

(2010). Therefore, the Court recites the material and undisputed facts to decide the

Motion and not to resolve issues of material fact.

1 Plaintiff states in his opposition brief that his “request for treble damages is not based on

[N.C.G.S.] § 75-1.1 but simple punitive damages that may be awarded by the trier of fact in fraud

cases.” (Pl.’s Resp. Defs.’ Mot., p. 19.) Nevertheless, because Plaintiff has sought treble damages in

his Complaint and has alleged at his deposition that Defendants have committed unfair and

deceptive trade practices (Dep. Vollrath 107:21–108:5), the Court will address these contentions as

an attempt to assert a UDTPA claim.

2 Although it is unclear from the Complaint whether Plaintiff intends to assert “piercing the corporate

veil” as a separate claim for relief in this action, to the extent he seeks to do so, the Court dismisses

the claim with prejudice as a matter of law. See Green v. Freeman, 367 N.C. 136, 146, 749 S.E.2d 262,

271 (2013) (“The doctrine of piercing the corporate veil is not a theory of liability. Rather, it provides

an avenue to pursue legal claims against corporate officers or directors who would otherwise be

shielded by the corporate form.”); Green v. Freeman, 756 S.E.2d 368, 372 (N.C. Ct. App. 2014)

(“[P]iercing the corporate veil . . . is not itself a cause of action.”).

{5} Corinthian was formed in 2010 for the purpose of creating, developing, and

commercializing methods for delivery of topical ophthalmic drugs. (Aff. Fred

Hutchinson ¶ 3, Aug. 29, 2014.)

{6} Plaintiff is an attorney who co-founded Corinthian and served as

Corinthian’s CEO, Director, and Treasurer from its inception until November 2011.

(Defs.’ Br. Supp. Mot., p. 2–3.) After Plaintiff’s resignation as CEO in November 2011,

Plaintiff remained employed by Corinthian as the Director of Regulatory Affairs until

his resignation from the Company in April 2014. (Dep. Jürgen Vollrath, p. 65, July

30, 2014.)

{7} In January, 2011, Plaintiff was granted non-qualified stock options under

the Company’s 2010 Stock Option Plan to purchase 9,000 shares of Company stock

at an exercise price of $30 per share within 10 years of the date of grant. (Dep.

Vollrath, Exs. 3–4.) The terms of the option grant were memorialized in a Stock

Option Award Agreement between Plaintiff and the Company. Under the terms of

an Addendum to the Stock Option Award Agreement, Plaintiff and the Company

agreed that Plaintiff’s right to exercise these options would expire no later than 180

days after termination of his employment at the Company. (Pl.’s Resp. Defs.’ Mot.,

Ex. 10).

{8} On November 9, 2011, and in exchange for a payment of $7,500, Plaintiff

entered into a non-compete agreement with Corinthian (the “Non-compete

Agreement”) under which he was entitled to receive a severance benefit “equal to

eighteen months of [Plaintiff’s] base salary . . .” in the event he was terminated

without cause (Pl.’s Resp. Defs.’ Mot., Ex. 1). Paragraph 11.1 of the Non-compete

Agreement expressly provided that Plaintiff would “not be entitled to any severance

benefits under [the Non-compete Agreement] should he be terminated without cause

at any time following a change in control or effective ownership of the Company.”

{9} Defendant Eshelman became CEO and Chairman of the Board of Directors

of Corinthian on February 8, 2013. On April 5, 2013, and in response to the

Company’s declining revenues, Eshelman reduced Plaintiff’s salary from $15,000.00

per month to $1,000.00 per month. (Dep. Vollrath 77:14–18, Ex. 6–7, 9.) Thereafter

and until his termination, Plaintiff received a monthly salary of between $1,000.00

and $2,000.00. (Id. at 80:2–22; Defs.’ Br. Supp. Mot., p. 3.)

{10} In late 2013, as the Company suffered a continuing decline in revenues,

Plaintiff and Corinthian began negotiating the terms of Plaintiff’s resignation from

Corinthian. Plaintiff was represented by counsel in these negotiations (Aff. Breton

Bocchieri ¶ 2, Sept. 22, 2014). Plaintiff and Corinthian ultimately reached an

agreement in April 2014 whereby Plaintiff agreed to resign his employment and

waive his right to severance under the Non-compete Agreement, (See Pl.’s Resp.

Defs.’s Mot., Ex. 3), in exchange for Corinthian’s agreement to cancel Plaintiff’s

existing stock options at the $30 exercise price and to award Plaintiff new stock

options to purchase 9,000 shares of Corinthian stock at a much lower exercise price

of $12.83 per share. It is undisputed that the Company advised Plaintiff that the

$12.83 per share exercise price was based on a “recently received term sheet” the

Company had received from a potential purchaser of all of the Company’s stock or

assets. (Pl.’s Br. Supp. Defs.’ Mot., Ex. 8, the “Notice of Nonstatutory Stock Option”;

Defs.’ Br. Supp. Mot., p. 4; Defs.’ Br. Supp. Mot., Ex. 19-1, the “Memorialization

Letter”.)

{11} On April 8, 2014, Plaintiff executed a Nonstatutory Stock Option Agreement

to evidence the Company’s stock option grant at the $12.83 exercise price (the “Stock

Option Agreement”). The Notice of Nonstatutory Stock Option Agreement (the

“Notice”) attached to and incorporated in the Agreement stated that the options

would expire on April 8, 2021 but specifically provided that the options “may expire

earlier pursuant to Section 8(b) of the . . . Stock Option Agreement.” (Defs.’ Br. Supp.

Mot., Ex. 19-2.)

{12} Section 8(b)(2) of the Stock Option Agreement, titled “Consequences of a

Change in Control,” expressly stated that “[i]n connection with a Change in Control,

the Board may in its discretion take any one or more of [six] actions as to [Plaintiff’s

stock options] on such terms as are reasonable and as the Board determines,”

including to “provide that [Plaintiff’s stock options] shall become exercisable,

realizable or deliverable in whole or in part prior to or upon such Change in Control.”

{13} The Stock Option Agreement also included a Merger Clause that provided

that the Stock Option Agreement “supersede[d] in their entirety all prior oral or

written undertakings and agreements of the Company and [Plaintiff] with respect to

[Plaintiff’s stock options].”

{14} Consistent with the terms of the negotiated agreement, Corinthian paid

Plaintiff the total amount of $6,233.33, and Plaintiff thereafter resigned from his

employment at Corinthian in April 2014.

{15} Several weeks later, on May 27, 2014, Corinthian announced that a

competitor, Eyenovia, Inc., had agreed to purchase Corinthian’s assets and that,

pursuant to the Board’s authority under Section 8(b) of the Stock Option Award,

holders of Corinthian stock options, including Plaintiff, would be required to exercise

their options prior to the closing of the sale to Eyenovia in order to receive stock in

the new company. (See Compl. ¶ 23; Aff. Hutchison ¶¶ 11–12.)

{16} On October 21, 2014, Defendants notified the Court via email that

Corinthian had “closed on the sale of assets to . . . Eyenovia” (the “Sale”). (Email

from Benjamin R. Norman, attorney for Defendants, to Dorothy M. Gooding, law clerk

to the undersigned (October 21, 2014, 5:30 PM) (on file with the Court).) Despite

undisputed evidence that Plaintiff’s options potentially had an in-the-money value of

up to $50,000, Plaintiff did not exercise his option to purchase 9,000 shares of

Corinthian stock before the closing on the Sale.3 (Aff. Hutchison ¶ 13.)

{17} As noted, this case was filed on June 27, 2014. In the Proposed Case

Management Order submitted by the parties on September 3, 2014, Plaintiff

represented that he did “not wish to take any depositions.” Plaintiff acknowledged in

his opposition papers that he has not taken any depositions or served any discovery

requests to date, and Plaintiff has not indicated any intent to do either. In addition,

Plaintiff has chosen to defend against Defendants’ Motion and present his

contentions on the issues raised and, in particular, has not sought a continuance

3 At the hearing, Plaintiff did not dispute the Defendants’ evidence of the potential value of

Plaintiff’s stock options but contended that they had no value to him because he did not have

sufficient funds to exercise the options.

under North Carolina Rule of Civil Procedure 56(f) to delay resolution of Defendants’

Motion so that further discovery may be taken.

{18} Plaintiff was deposed by the Defendants on July 30, 2014, and Defendants

have indicated they wish to conduct no further depositions or discovery.

{19} The Court held a hearing on the Motion on October 8, 2014. Although the

discovery period has not expired, the Court is satisfied that adequate discovery has

occurred on the issues raised in Defendants’ Motion for the Court to consider the

Motion at this time. Plaintiff has presented no basis for the Court to conclude that

further discovery may uncover evidence relevant to the issues presented to the Court

for determination. See Brown v. Greene, 98 N.C. App. 377, 380, 390 S.E.2d 695, 697–

98 (1990); Ussery v. Taylor, 156 N.C. App. 684, 686, 577 S.E.2d 159, 161 (2003);

Hamby v. Profile Prods., LLC, 197 N.C. App. 99, 112–14, 676 S.E.2d 594, 602–04

(2009). Accordingly, the Court concludes that the Motion is ripe for resolution.

III.

STANDARD OF REVIEW

{20} Summary judgment is appropriate where “the pleadings, depositions,

answers to interrogatories, and admissions on file, together with the affidavits, if any,

show that there is no genuine issue as to any material fact and that any party is

entitled to a judgment as a matter of law.” N.C. R. Civ. P. Rule 56(c) (2014). “A

genuine issue of material fact has been defined as one in which ‘the facts alleged are

such as to constitute a legal defense or are of such nature as to affect the result of the

action, or if the resolution of the issue is so essential that the party against whom it

is resolved may not prevail . . . .” Smith v. Smith, 65 N.C. App. 139, 142, 308 S.E.2d

504, 506 (1983). The Court views the evidence in the light most favorable to Plaintiff

and draws all reasonable inferences in favor of Plaintiff. Whitley v. Cubberly, 24 N.C.

App. 204, 206, 210 S.E.2d 289, 291 (1974).

IV.

ANALYSIS

A. Fraud

{21} “‘The essential elements of fraud [in the inducement] are: (1) False

representation or concealment of a material fact, (2) reasonably calculated to deceive,

(3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage

to the injured party.’” Tradewinds Airlines, Inc. v. C-S Aviation Servs., 733 S.E.2d

162, 168 (N.C. Ct. App. 2012) (citation omitted).

{22} The crux of Plaintiff’s fraud claim is his allegation that he forfeited what he

claims to be a lucrative severance benefit4 because Defendants’ representations and

concealments misled him to believe he would be guaranteed a full seven-year period

within which to exercise his stock options or, in the event the Company was sold, that

his stock options – with their full seven-year exercise period – would be assumed by

any purchaser of the Company.5

{23} As an initial matter, the Notice makes plain in clear language that

Plaintiff’s stock options “may expire [prior to April 8, 2021] pursuant to Section 8(b)

of the . . . Stock Option Agreement,” (Defs.’ Br. Supp. Mot., Ex. 19-2.). Similarly,

Section 8(b) of the Stock Option Agreement expressly provides, again in very clear

language, that the Company’s Board had the discretion to handle Plaintiff’s stock

options in the event of a change in control in a variety of ways, including by providing

that the options “[became] exercisable, realizable or deliverable in whole or in part

prior to or upon such Change in Control.” Here, it is undisputed that the Company

elected to make Plaintiff’s and all option holders’ outstanding stock options

exercisable up until the effective date of change in control, i.e., the day of the closing

4 Plaintiff contends his 18-month severance benefit in the Non-compete Agreement was worth

$270,000, arguing that his $15,000/month salary – his salary in effect through early April 2013 –

should be multiplied by the Non-compete Agreement’s 18 month benefit period to determine the total

benefit. Defendant counters by contending that the Non-compete Agreement provides that Plaintiff’s

waived severance should be based on Plaintiff’s salary at the time of termination – i.e., between

$1,000/month and $2,000/month – and thus should be valued at no more than $36,000.

5 Although Plaintiff alleged in his Complaint that he was promised a ten-year exercise period

(Compl. ¶ 31), he acknowledged at the hearing, consistent with the language in the Notice of

Nonstatutory Stock Option, that the allegedly promised exercise period was only for seven years.

of the sale to Eyenovia. The Court therefore finds as a matter of law that the

Company’s action was consistent with the Company’s obligations under the plain

language of Section 8(b) of the Stock Option Agreement.

{24} Plaintiff seeks to avoid dismissal by contending that Defendants

fraudulently induced him into entering the Stock Option Agreement. Specifically,

Plaintiff contends that Defendants misled him to believe that, despite the plain

language to the contrary in the Agreement, his stock options would necessarily

survive for up to seven years and any purchaser of the Company would assume his

option agreement.

{25} Plaintiff, however, has presented no evidence of a misrepresentation or

concealment of material fact of any kind. In particular, Plaintiff does not allege that

Defendants told him his stock options would not expire before the end of seven years.

Furthermore, he admitted at his deposition that no one at Corinthian told him that

a buyer would assume his stock options at any time, (Dep. Vollrath 106:22–107:3),

and he cannot point to any affirmative representation by Defendants that Plaintiff’s

stock options would be assumed in a stock or asset sale of Corinthian.

{26} In short, Plaintiff’s alleged proof of fraud consists of nothing more than his

assumption that Corinthian would choose not to exercise its rights under the Stock

Option Agreement in the fashion that Corinthian ultimately did. Such purported

proof – particularly here where Plaintiff, himself a lawyer, freely negotiated the terms

of the Agreement with Corinthian, aided and advised by his own separately-retained

counsel – is not sufficient to sustain a claim for fraud under North Carolina law.

{27} Based on the foregoing, the Court concludes that there is no genuine issue

of material fact as to Plaintiff’s fraud claim, and that Defendants Corinthian and

Eshelman are entitled to judgment dismissing Plaintiff’s fraud claim as a matter of

law.

B. Unfair and Deceptive Trade Practices

{28} As noted above, Plaintiff has denied asserting a UDTPA claim while at the

same time alleging that Defendants engaged in unfair and deceptive trade practices

and seeking treble damages. Given Plaintiff’s allegations, the Court will address

Plaintiff’s allegations as if he has intended to assert a UDTPA claim.

{29} “A claim of unfair and deceptive trade practices under section 75-1.1 of the

North Carolina General Statutes requires proof of three elements: (1) an unfair or

deceptive act or practice, (2) in or affecting commerce, which (3) proximately caused

actual injury to the claimant.” Nucor Corp. v. Prudential Equity Grp., LLC, 189 N.C.

App. 731, 738, 659 S.E.2d 483, 488 (2008) (citation omitted). “‘A practice is unfair

when it offends established public policy as well as when the practice is immoral,

unethical, oppressive, unscrupulous, or substantially injurious to consumers,’ and a

‘practice is deceptive if it has the capacity or tendency to deceive.’” Bumpers v. Cmty.

Bank of N. Va., 367 N.C. 81, 91, 747 S.E.2d 220, 228 (2013). An award of treble

damages is appropriate where a person is damaged by another’s unfair or deceptive

practices. Shepard v. Bonita Vista Props., L.P., 191 N.C. App. 614, 624, 664 S.E.2d

388, 395 (2008) (citing N.C.G.S. § 75-16 (2013)).

{30} To the extent Plaintiff has alleged a UDTPA claim, the claim must fail as a

matter of law for the following reasons. First, the alleged conduct occurred within

the scope of an employer-employee relationship, Buie v. Daniel Int’l Corp., 56 N.C.

App. 445, 448, 289 S.E.2d 118, 119–20 (1982) (“Unlike buyer-seller relationships . . .

employer-employee relationships do not fall within the intended scope of [N.C.G.S.] §

75-1.1 . . . .”). Second, the alleged conduct occurred in the context of a sale of

securities, Hajmm Co. v. House of Raeford Farms, Inc., 328 N.C. 578, 593, 403 S.E.2d

483, 492 (1991) (“‘[S]ecurities transactions are beyond the scope of [the UDTPA].’”).

Third, the alleged conduct concerned the purely internal conduct of a single business,

and thus, was not “in or affecting commerce,” White v. Thompson, 364 N.C. 47, 53,

691 S.E.2d 676, 680 (2010) (“The General Assembly did not intend for the [UDTPA]

to regulate purely internal business operations.”). And finally, Plaintiff has failed to

provide evidence of fraud or of any acts otherwise sufficiently “immoral, unethical,

oppressive, unscrupulous” or “deceptive” to sustain a claim under the

UDTPA. Murray v. Nationwide Mut. Ins. Co., 123 N.C. App. 1, 9, 472 S.E.2d 358,

362 (1996). Accordingly, the Court finds there is no genuine issue of material fact

and that Defendants are entitled to summary judgment dismissing Plaintiff’s UDTPA

claim with prejudice.6

C. Piercing the Corporate Veil

{31} Plaintiff seeks to impose liability on Defendant Eshelman under a “piercing

the corporate veil” theory. Because Plaintiff’s claims for fraud and UDTPA fail as a

matter of law, Plaintiff’s attempt to pierce Corinthian’s corporate veil and impute

liability to Defendant Eshelman on those same claims necessarily fails as well.

V.

CONCLUSION

{32} Based on the foregoing, the Court GRANTS Defendants’ Motion for

Summary Judgment and DISMISSES Plaintiff’s claims in this action with prejudice.

SO ORDERED, this the 20th day of November 2014.

6 To the extent Plaintiff’s claim can be read as one for punitive damages rather than for violation of

the UDTPA, the Court concludes that, just as Plaintiff has failed to provide sufficient evidence to

create an issue for trial on his purported UDTPA claim, Plaintiff has failed to bring forward

sufficient evidence to sustain a claim for punitive damages as a matter of law.